Claims Reserving Manual, vol.1: Section L: Actuarial considerations

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Actuarial methods have for a long time been at the heart of life assurance, providing the essential discipline and long-term financial control. But in the last three decades, it has been increasingly realised in the UK that actuarial methods have an important part to play in general insurance as well. Although the time span is for the most part shorter, the business is likewise concerned with the measurement and financial control of risk. The problems of risk assessment and reserving, of solvency and the release of surplus are present in equal measure as with the life side.

The more sophisticated aspects of actuarial practice in claims reserving are to be found in Volume 2 of the Manual. The present section takes as its main subject the financial question of the discounting of reserves. There is a short discussion of some pros and cons of discounting, but the aim is to raise pertinent questions rather than provide conclusive answers. Some practical examples are given, showing how to put discounting into practice, if and when it is required.

The other actuarial topic dealt with at this stage is the monitoring of the claims estimates. Every method which is used for the estimating job should be regularly checked for the stability and reliability it shows in practice. Such procedure is a necessity if claims reserving is to be properly and professionally done.

Contents: The actuarial approach; The discounting of claims reserves; Practical example of discounting; Discounting combined with inflation; Tracking the performance